Redbox: The Final Nail for Blockbuster, Even After Blockbuster Declined to Buy Netflix… Several Times

Recently a story was authenticated indicating that several times during the early 2000’s, the then CEO of Blockbuster turned down offers to purchase Netflix, which was at the time still an upstart. While Blockbuster’s CEO John Antioco was a very respected negotiator, typical of Blockbuster executives historically, he wasn’t viewed as a visionary.

While Netflix’s popularity was growing rapidly, it had been a money loser early on, as it relied entirely on subscriptions for DVDs through the mail, which at the time was an untried business model. Apparently Blockbuster brass failed to see the consumer values and efficiencies built into this system. No one could blame them for not realizing the future impact of the slowly evolving technology of video streaming, which eventually seems to have become the final step in the rental industry domination of Netflix and Amazon.

New technologies at the end of the twentieth century proved to be a real game changer for North American and indeed international retailing and commerce. Promising new companies emerged which were direct products of these technologies.

The key to these technologies was the Internet. Here most of corporate America, not just retailers, suddenly enjoyed a radical, new platform from which to promote and directly offer their wares. This phenomenon was naturally expanded, even exploded, during the new century, as complimentary technologies such as streaming video have strongly bolstered the appeal of commercial offerings on the Internet.

One of the most prominent of these unique technologically-based startups was Redbox Automated Retail, LLC. Based on then parent Coinstar’s (now called Outerwall Inc.) technological prowess, Redbox broke out a new a new era of vending machines on a national basis. The Redbox fleet of kiosks, initially offering of overnight rentals of DVDs for $1.00, grew rapidly. These machines were conveniently located within or just outside locations of popular, ubiquitous retail chains such as Walmart and Walgreens.

The Redbox revolution proved to be a significant player in the final downfall of former Video rental giants Hollywood Video, Movie Gallery and most recently Blockbuster. Though earlier startups, Netflix and Amazon were the initial culprits to begin and accelerate the demise of these once mostly brick and mortar giants, direct competition from Redbox kiosk locations quickly brought the brick and mortars down.

While a major part of the Redbox advantage was its low and simple rental price, Redbox kiosks were also virtually available 24/7. Previously hated late fees at Blockbuster were a simple extension of the $1.00 per night rate and thus never really an issue for Redbox customers. Shortly after Redbox began to rapidly expand its plethora of locations, Hollywood began to close locations and then shut down operations.

Blockbuster too revved up closings. At the same Blockbuster showed another factor responsible for its demise, that of its tendency to be a copycat rather than an innovator. Previously the company had attempted to copy the Netflix mail-out concept as an enhancement to its grand fleet of stores. Obviously this never really worked out. Then, to mimic the success of Redbox, Blockbuster quickly teamed with a division of NCR Corp., to create a Redbox kiosk imitator, the blue-boxed Blockbuster Express.

While pretty much a blue Redbox look-a-like, Blockbuster Express never really took off, as had the Redbox chain. Redbox being first, had gained the advantage of placement at many of the most desirable national chains.

Strategically, Blockbuster Express proved to be myopic. Partnering with several regionally admired chains such as Publix, Blockbuster Express machines were often at a disadvantage. While these chains were well shopped, Express machines were often located inside stores and thus were unavailable after closing hours. To make matters worse these closing hours varied by day and location.

Sadly, Blockbuster was unable to match the attractive Redbox pricing scheme of $1.00 per nightly rental for long. Soon after commencing operations, Blockbuster Express began using price-tiers. The tiers were based on the recent release dates of new movies, some of which were short-term exclusives, under contract to Blockbuster.

Blockbuster worked off contracts with Hollywood studios to preempt competitors from having first dibs on new studio releases. Blockbuster happily passed the costs of these contracts onto its public.

While competitors resented these deals, Redbox sat back and enjoyed the price differentials which Blockbuster haphazardly employed. Whether or not a particular new film release fell under Blockbuster’s contractual advantage, Blockbuster seemed to charge a premium in multiples for a ‘hot’ new release.

Many of these releases were not under the exclusive contract arrangement and could be obtained at a Redbox for a dollar while a nearby Blockbuster Express charged two to three times more. This quickly diminished the Blockbuster Express reputation along with the Blockbuster brand. Finally in February, 2012 it was announced that Redbox would acquire Blockbuster Express and all of its existing machines.

Redbox’s growth and popularity continues to impress. The retailer currently boasts over 43,600 locations and is growing. As an add-on, video games have become a vital part of its small box revenues. And it even offers series produced by the likes of Netflix.

Currently, the company is exploring a streaming video service through Verizon Wireless, called Redbox Instant. The service recently passed ‘beta’ testing and a subscription costs $8 per month including four DVD rentals from a Redbox location. Eliminate the DVDs and the service costs $6 per month, two dollars less than Netflix but with access to a library about a third the size of the Netflix model.

Last year Redbox unveiled a plan to offer tickets to concerts and sporting events to compete with more expensive services such as Ticketmaster. The service was planned to be tested in limited markets. At this point it seems the service has been suspended but you can’t fault a company for planning outside its small box.

Recently Redbox announced that its combined rentals of video products and games hit a record level during the quarter ending September 2013. This, despite the increasing popularity of the aforementioned competing video streaming services. Here success is seen as a win-win for both Redbox and the retailers hosting Redbox kiosks. Said retailers are the happy recipients of the additional traffic generated as consumers both pick up and return their pleasures to Redbox kiosks. Such mutual benefits were rarely associated with Blockbuster locations.

As companies like Redbox, Netflix and Amazon continue to innovate with new services through enhanced technologies, apparently Blockbuster and its parent Dish Network have run out of ideas and run their course. Even as imitators, they failed to succeed.

Arthur has worked at Chain Store Guide for 20 years. He received a B.A. degree from City College of New York and attained a master’s degree in electronic communications from Brooklyn College. Please contact him if you have any questions or comments.